The Taipei government is to review laws related to investment from Hong Kong and Macao companies that have ties to mainland China, in order to prevent infiltration, the official Mainland Affairs Council has said.

Earlier, Taiwanese media reported that the council might remove the foreign capital status of three types of Hong Kong and Macao companies by amending Article 31 of the “Laws and Regulations Regarding Hong Kong and Macao Affairs.”

Those three types of capital cover investments made by mainland people, legal entities or groups investing in Hong Kong and Macao; by Hong Kong and Macao residents who were previously mainland residents; and by companies that are influential on the mainland or derive their main revenues from the mainland.

The legislative amendments were being considered following drastic changes in Hong Kong’s situation and its role as an international financial center, which was likely to become a base of infiltration into Taiwan, local media cited a source from the island’s ruling party as saying.

Following the media reports, the council clarified on Wednesday afternoon that the authorities were looking into amending the law to prevent mainland capital infiltrating Taiwan through a third area, in order to defend the safety and stability of the Taiwanese economy.

The review would not include a plan to remove the status of Hong Kong capital as foreign capital, the council said, contrary to the news coverage.

Article 31 of the Laws and Regulations Regarding Hong Kong and Macao Affairs should apply only to “purely Hong Kong or Macao capital,” instead of mainland capital in Hong Kong, the council said.

The potential legal amendments would not affect “real” Hong Kong companies, but Hong Kong-registered companies whose capital was on the mainland, said Kevin Tsui, associate professor of economics at Clemson University.

The new rules might unintentionally affect Hong Kong companies with businesses on the mainland, but it would unlikely affect small and medium firms, since those with mainland businesses tended to be large companies, Tsui added.

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